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Friday, 14 September, 2001, 23:41 GMT 00:41 UK
Developing states face credit fears
Website of Spanish mobile phone firm Telefonica Moviles
Telefonica Moviles: 'exceptional events' led to end of Brazilian takeover deal
Developing countries will find it harder to raise funds in international capital markets as a result of the uncertainties generated by the air strikes on Wall Street, a major international credit ratings agency has warned.

And Spanish telecoms firm Telefonica has pulled out of an $800m deal to buy Brazilian mobile operator Celular CRT, blaming stock market instability caused by the air attacks.

Governments in developing countries have struggled to reassure citizens and investors that the economic fall-out from the devastation of New York's financial district can be contained.

But stock markets in many developing countries have fallen steeply since the attacks on 11 September, with markets in India, Brazil and Turkey especially hard hit.

Recession fears

In countries which depend heavily on exports to the United States - particularly in Asia and Latin America - fears remain that US consumer confidence will crumble and sales dry up.

US-based credit ratings agency Standard & Poor's said it is reveiwing the contingency plans of heavily indebted developing countries.

'Risk averse' lenders

Investors are likely to become more "risk-averse" and reluctant to lend, said S&P, which assesses the credit worthiness of developing countries' government bonds.

"It is difficult to predict how long these uncertainties might last, but as long as they do they will inevitably raise the cost and curtail the availability of cross-border debt financing in many ermerging market countries", said David Beer of S&P.

S&P highlighted Brazil, Argentina, Turkey and Lebanon as needing to borrow large sums.

Brazil market turmoil

Colombia, the Philippines and Jamaica could also face trouble borrowing, it warned.

In Brazil, the stock market's plunge caused Spanish firm Telefonica's subsidiary Telefonica Moviles (TM) to abandon its plan to take over Celular CRT.

The original agreement gave TM the right to cancel if Brazil's benchmark Bovespa index fell below 25% below its 24 July level.

Within two days of the air strikes on the World Trade Center, the Bovespa was 25% down in dollar terms.

TM said cancellation of the deal was advisable because "the volatility of the markets puts at risk the safe the efficient execution of the transaction".

'Exceptional events'

"The exceptional events of the last few days have provoked a significant change in the normal functioning of international capital markets", TM said in statement to Spain's stock market regulator.

It had been due to issue shares worth $800m to buy the remaining 54.3% of Celular CRT. The Brazilian firm's shares fell 50% on the news.

In India, fears the US will mount a military strike against Afghanistan dragged the Bombay Stock Exchange (BSE) to a 33-month low at one point on Friday.

The BSE dived 7.5% during Friday, though it recovered slightly to close down 5.5% down at 3830.

Bombay market falls

"The worst hit were stocks of technology companies which have a big exposure to US markets", according to BBC Bombay correspondent Sanjeev Srivastava.

The rupee also fell to a new low to a new low of 47.83 against the dollar.

Another worry for developing countries is the likely cancellation of the IMF and World Bank's annual meetings in Washington later this month.

Yashwant Sinha, Indian Finance Minister
"The best reply the world can give is to return to normal service as soon as possible."
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